Power supply gap comes back to haunt topsy-turvy Eskom
It was only 18 months ago that Eskom had an excess of electricity and the then interim CEO, Matshela Koko, appealed to business and consumers to buy more power — an unlikely prospect as prices were rocketing.
The excess came after several years of scarcity, in which load-shedding was a reality and Eskom ran diesel power open-cycle gas turbines daily, spending billions on diesel. But things have again changed, and awfully fast.
In the past month or so Eskom has found itself in the state it was in during the loadshedding years prior to 2015: it doesn’t have enough electricity to keep up with demand; it is running its diesel open-cycle gas turbines hard most days to avoid loadshedding; and its plants are shot, resulting in repeated unplanned outages.
There is again a real risk that even if the economy was to grow significantly, Eskom would be unable to provide the energy to power it.
The country’s most diligent Eskom watcher, engineer and publisher Chris Yelland, has made it his business to keep track of what is called Eskom’s energy availability factor, a ratio of how much of its plant is available to generate electricity at any one time. Since August the ratio has been dropping fast: in the past three months the weekly measure has fallen from 79% to 68%. The average for the year so far is 73%. At its worst in 2015, the energy availability factor was 70%.
But at the Eskom results presentation in July, new CEO Phakamani Hadebe was confident about Eskom’s operational strength, putting all the emphasis on the utility’s financial crisis.
What went wrong? The coal supply problem is one. The old Eskom model in which power stations were built on top of coal mines in which Eskom itself invested in exchange for cost-plus supply contracts is collapsing. The Koko-Brian Molefe regime decided Eskom would not invest in these mines (owned by big multinationals) to prolong their lives, but rather seek coal from emerging suppliers that would be trucked in.
That strategy, which provided lots of room for fiddling coal contracts to benefit Eskom staff, has now resulted in a coal crisis and stocks at power stations are falling dangerously low.
A second, larger problem goes to the heart of how Eskom has been run over the past decade. In a tariff application submitted to the National Energy Regulator of SA last month (in which it asks for an annual 15% tariff increase for the next three years), Eskom says the midlife refurbishments that should have been carried out on its ageing fleet were not done. More than half of the fleet is over 35 years old and its performance is deteriorating. The tariff application says the falling plant performance witnessed between 2010 and 2015 has been arrested. But as this year’s average shows, that is not the case. The risk is that it will fall further.
Eskom does have a lot of new capacity from the Medupi and Kusile stations, which will come on stream over the next few years. But its system planners do not appear confident that this will solve supply problems.
ESKOM FINDS ITSELF IN THE STATE IT WAS IN DURING THE LOAD-SHEDDING YEARS PRIOR TO 2015: IT DOESN’T HAVE ENOUGH ELECTRICITY
Another document, also produced by Eskom and also a statutory requirement, called the medium-term system adequacy report, was published recently. In it, Eskom is required to say how it will meet supply over the next five years and the gaps that might exist in doing so.
The report sketches out several scenarios, depending on varying demand and the energy availability factor. In the scenario in which the energy availability factor is 73% and there is moderate demand, Eskom has supply shortfalls in three of the next five years.
In a scenario where the energy availability factor drops to 71% and demand is either low or moderate, there are supply shortfalls every year for the next five years.
Within all of this, don’t lose sight of Eskom’s financial crisis. The tariff application says Eskom has R250bn in debt repayments and interest payments over the next three years. In its last set of results it was clear that Eskom does not earn enough in operational revenue to service that debt.
All in all, reality is coming up on Eskom fast. Its new leadership promised a strategic plan by the end of September, which has now been delayed to November 15.
Time is running out and decisions must be made. The economy cannot be fixed without Eskom.